Bond concepts Answer: b Diff: M N
41. Bonds A, B, and C all have a maturity of 10 years and a yield to maturity equal to 7 percent. Bond A’s price exceeds its par value, Bond B’s price equals its par value, and Bond C’s price is less than its par value. Which of the following statements is most correct?
a. If the yield to maturity on the three bonds remains constant, the price of the three bonds will remain the same over the course of the next year.
b. If the yield to maturity on each bond increases to 8 percent, the price of all three bonds will decline.
c. If the yield to maturity on each bond decreases to 6 percent, Bond A will have the largest percentage increase in its price.
d. Statements a and c are correct.
e. All of the above statements are correct.
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